The means test is used as one determination of your ability to file for chapter 7. It applies only to individuals who have “primarily consumer debt”. So if the majority of your debt is due to starting a business, or investments, you may be considered to have primarily non-consumer debt and may be exempt.
But for the vast majority of clients, a determination of your regular income over the six months preceding the bankruptcy filing is required.
The first step is to determine the size of your household. This is not necessarily as simple as husband, wife, and children. In some households, there may be adult children, a disabled relative, parents of the debtor, or even a non-related person such as a boyfriend or girlfriend.
But no matter how the household size is determined, the household income is used for purposes of satisfying the means test. Once this household size is determined, the household income is compared to the household income of an average family in Florida of the same number of persons.
If your household income is less than the Florida average for a family of the same size, then you have passed!
If your income is more than the average Florida family of your size, then there is a second chance to “pass”.
This second analysis allows a computation of income, before and after taxes, and a mixture of your actual expenses (like car and mortgage payments) and standardized expenses from that “average Florida family”.
Once these extra calculations are completed, if you have an amount greater than $182.50 per month left over, you may not qualify for chapter 7.
There is always an opportunity to rebut the presumption that you have disposable income. But the decision would lie with the judge assigned to your case.
Since the means test came into being under the bankruptcy law changes in 2005, there are many areas that are open to interpretation. Not every potential situation could have been accounted for in drafting the new bankruptcy laws in 2005. Therefore, some issues are still being determined in the courts.
But since by definition the average Florida family is average, half of the people satisfy the test based on their income alone. The half that “fail” the first part of the test usually pass after going through the analysis portion of the means test.
I have seen and heard many misstatements about the means test recently as more people research their options under bankruptcy. I have heard statements such as: “I am not subject to the means test because I have IRS debt” or “I am not subject to the means test because I have student loans”.
The means tests is a complicated formula that should not be taken lightly. Even if one does not pass the means test, there may be ways to qualify with proper bankruptcy planning.
If you think your income is too high for chapter 7, you may be surprised to find out you qualify after a thorough bankruptcy consultation that includes a means test analysis.